Pricing of options, I hope the Model 3 is reasonable.

[dsvick]

[QUOTE="ohmman, post: 1926383, member: 21484
The only thing that seems to make sense to support a difference in pricing would be if the S/X had an updated suite or software set. But that goes against what I know about Tesla to date.[/QUOTE]
The S and the X are both larger than the 3 so they are harder to self drive which means the software has to work harder which means it will be more expensive on those models.

Actually, I can see both points here, I can see them making it less expensive because the Model 3 is a less expensive vehicle and I can see it being the same price because it is essentially the exact same software. I'll probably start with the EAP from the start and not add full self drive until it is fully functional and legal where I live.

 

[MXWing]

One thing that's worth mentioning is that the AP suite is likely to cost the same as the rest of the fleet. So for "full self-driving capability," we're talking about $8k atop the base price. And my thought is that it's quite likely there will be other prerequisites before you can even tack that on.

My belief is Tesla loses their shirt on every Model 3 they sell at 35k. Tesla -maybe- breaks even with Model 3 + EAP and FSDC.

When Elon thinks the typical Model 3 will come out at 42k, most of that increase is going to be from adding in the AP suite.

Tesla is going to do everything they to make you buy that car for 50k. I doubt brakes are going to be even included for 35k. Get used to 1 pedal driving...

 

[daniel]

Beliefs are worth exactly what you paid for them: Nothing.

 

[MXWing]

Beliefs are worth exactly what you paid for them: Nothing.

My holdings in TSLA is more than what I have in my Model X. Newly invested money, not 2004 stock appreciation money.

So yes, one could say I have my money where my mouth is.

 

[daniel]

My holdings in TSLA is more than what I have in my Model X. Newly invested money, not 2004 stock appreciation money.

So yes, one could say I have my money where my mouth is.

You've still provided no grounds other than your "belief" that Tesla will "lose their shirt" on every Model 3 sold for $35,000. My belief is that they will not. And my belief is worth no more and no less than yours. But Elon Musk has shown himself to be a pretty good businessman, and I cannot see him underpricing his cars while overpricing the options to make up for it. That seems like an odd business model.

And there is very good evidence that Tesla will include brakes with the Model 3 because Musk has said that it will get top ratings in all safety categories, which would be hard to do without brakes. Yeah, I know, your comment about brakes was hyperbole. But Tesla has said that all the safety features would be standard (some car makers offer side air bags and other safety enhancements only as an option) and that all the hardware for autonomous driving will be standard (other car makers will charge extra for such hardware, if they offer it at all). The base level Model 3 will be a fabulous car. Some of the options will be beyond fabulous and a great temptation for all of us, so, yes, they'll sell a lot of $50,000-trim-level Model 3's.

But underpricing (and taking a loss on) the car and then overpricing important options to make up for it is just a crazy business model. So, no, I don't think your admirable faith in TSLA stock justifies your "belief" that the $35,000 base trim line Model 3 will lose Tesla its shirt.

 

[MXWing]

You've still provided no grounds other than your "belief" that Tesla will "lose their shirt" on every Model 3 sold for $35,000. My belief is that they will not. And my belief is worth no more and no less than yours. But Elon Musk has shown himself to be a pretty good businessman, and I cannot see him underpricing his cars while overpricing the options to make up for it. That seems like an odd business model.

And there is very good evidence that Tesla will include brakes with the Model 3 because Musk has said that it will get top ratings in all safety categories, which would be hard to do without brakes. Yeah, I know, your comment about brakes was hyperbole. But Tesla has said that all the safety features would be standard (some car makers offer side air bags and other safety enhancements only as an option) and that all the hardware for autonomous driving will be standard (other car makers will charge extra for such hardware, if they offer it at all). The base level Model 3 will be a fabulous car. Some of the options will be beyond fabulous and a great temptation for all of us, so, yes, they'll sell a lot of $50,000-trim-level Model 3's.

But underpricing (and taking a loss on) the car and then overpricing important options to make up for it is just a crazy business model. So, no, I don't think your admirable faith in TSLA stock justifies your "belief" that the $35,000 base trim line Model 3 will lose Tesla its shirt.

I hope you are right and I am wrong on Tesla not making money on a zero option Model 3.

Here are just three reasons why Tesla is in trouble if the bulk of M3 sales go optionless:

1 - Very high cost of operations. No employees at Tesla are paid cheaply. Tesla is in the heart of silicon valley. Practically all manufactured goods are overseas. These are basic economic concepts around comparative advantage production.

2 - Model 3's will come with software limited batteries, software limited autopilot hardware, software as much as everything. This is a gamble on Tesla's part. They pay for all the high end hardware, hoping people will activate them. If they don't, they eat it. Two Titan X Gpus that sit in a car, inactivated and collecting dust really hurts Tesla. People need to pay 8000 for that. If they want to produce in volume and allow every car for the same "autonomy potential" they have to include the hardware and find a way to make you pay for it.

3 - Some repeat of #1 and #2 but I believe $35,000 is a very subsidized price point.

Even my own MX60D is subsidized to some extent. If it wasn't, they would keep selling them. Margins simply weren't there so they cut it.

Again, I hope I am wrong but I'm trying to see things pragmatically. I'm betting a lot on TSLA's success.

 

[timk225]

Is it my fault if Tesla insists on putting extra batteries, GPUs, and other hardware into a 3 that I didn't ask for or order? That is a major waste of THEIR money. Putting all the autopilot sensors in the car when I know I will not order it? They should not be trying to guilt trip me into dumping another $8000 on my 3. $35,000 is going to be bad enough.

I told them not to give every 3 a 75 KW battery, take the extra cells out of cars ordered with the 60 KW pack. It is easy enough to swap in a 75 at a Tesla Service Center if the customer decides to upgrade later.

 

[dsvick]

1 - Very high cost of operations. No employees at Tesla are paid cheaply. Tesla is in the heart of silicon valley. Practically all manufactured goods are overseas. These are basic economic concepts around comparative advantage production.

2 - Model 3's will come with software limited batteries, software limited autopilot hardware, software as much as everything. This is a gamble on Tesla's part. They pay for all the high end hardware, hoping people will activate them. If they don't, they eat it. Two Titan X Gpus that sit in a car, inactivated and collecting dust really hurts Tesla. People need to pay 8000 for that. If they want to produce in volume and allow every car for the same "autonomy potential" they have to include the hardware and find a way to make you pay for it.

3 - Some repeat of #1 and #2 but I believe $35,000 is a very subsidized price point.

Even my own MX60D is subsidized to some extent. If it wasn't, they would keep selling them. Margins simply weren't there so they cut it.
.

I agree they make more money on options but I don't believe for a second that they'll lose money on base vehicles, that would be a horrible business model and they would get laughed at when the quarterly reports came out showing that.
#1 isn't as bad as you make it sound. Everything I've seen on the internet shows that Tesla pays competitive but not exorbitant salaries. I bet there are many union factories that are paying much higher rates than Tesla.

#2 You'll need to post a link with your evidence that the batteries on the Model 3 will be software limited. The hardware costs for the EAP and self driving is probably under $2K, and whether it is activated or not, Tesla is getting loads of data from it. Also, it's being used for the standard safety features for everyone. So, no it isn't wasted.

#3 repeat of #1 and #2

Did they get rid of the MX60D because of margins or because people weren't buying them? You'll need to provide a link before you start explaining their business decisions.

 

[NeverFollow]

I told them not to give every 3 a 75 KW battery, take the extra cells out of cars ordered with the 60 KW pack.
It is easy enough to swap in a 75 at a Tesla Service Center if the customer decides to upgrade later.

This could be an option to have a "downgraded" base $35k M 3 version with no options, and no possibility to upgrade.
A little bit like Apple don't let you upgrade any laptop or phone hardware with more memory or larger disk.

- But this would be against a previously announcement (from October 2016):
All Tesla Cars Being Produced Now Have Full Self-Driving Hardware.

- However nothing's carved in stone:
Tesla Will End Free Supercharging for Life

It would not be impossible to have a "downgraded" base $35k M 3 version with no options for fleets:
- For example, when renting a car I generally get a base version, not a full loaded model.

Also some specials deals would incite getting a base version:
- West Coast Mayors Want to Buy 24,000 Electric Vehicles in Bulk
- LA police to buy 100 BMW i3 electric cars for department use

In a case of fleet cars, used mostly inside a city, having a full Auto Pilot might not be a requirement,
and only anti collision would be really needed for a "downgraded" base $35k M 3 version.

 

[ohmman]

Is it my fault if Tesla insists on putting extra batteries, GPUs, and other hardware into a 3 that I didn't ask for or order? That is a major waste of THEIR money. Putting all the autopilot sensors in the car when I know I will not order it? They should not be trying to guilt trip me into dumping another $8000 on my 3. $35,000 is going to be bad enough.

I told them not to give every 3 a 75 KW battery, take the extra cells out of cars ordered with the 60 KW pack. It is easy enough to swap in a 75 at a Tesla Service Center if the customer decides to upgrade later.

Tesla is making a business decision for what hardware they'll put in the base Model 3, and what they'll want to enable on delivery. No, it's not your fault that Tesla puts extra batteries and other hardware into the 3. That's on them, and if that's the way they choose to roll them out, it's because they think people will buy up eventually, or that they'll be able to enable that hardware in the CPO market. If you decide that you're never going to enable Autopilot, then you don't have to worry about that hardware. It won't cost you anything more. If you're happy with the base battery pack, no worries. Just live with that.

Now, when and if you decide you want to upgrade, don't fault Tesla for making it so easy. Because in my opinion, that's their aim.

 

[MP3Mike]

n a case of fleet cars, used mostly inside a city, having a full Auto Pilot might not be a requirement, and only anti collision would be really needed for a "downgraded" base $35k M 3 version.

But that isn't a "downgraded" base Model 3, that is just a plain base Model 3. And the AP hardware isn't doing nothing it is being used for the safety features.

 

[daniel]

I hope you are right and I am wrong on Tesla not making money on a zero option Model 3.

Here are just three reasons why Tesla is in trouble if the bulk of M3 sales go optionless:

1 - Very high cost of operations. No employees at Tesla are paid cheaply. Tesla is in the heart of silicon valley. Practically all manufactured goods are overseas. These are basic economic concepts around comparative advantage production.

2 - Model 3's will come with software limited batteries, software limited autopilot hardware, software as much as everything. This is a gamble on Tesla's part. They pay for all the high end hardware, hoping people will activate them. If they don't, they eat it. Two Titan X Gpus that sit in a car, inactivated and collecting dust really hurts Tesla. People need to pay 8000 for that. If they want to produce in volume and allow every car for the same "autonomy potential" they have to include the hardware and find a way to make you pay for it.

3 - Some repeat of #1 and #2 but I believe $35,000 is a very subsidized price point.

Even my own MX60D is subsidized to some extent. If it wasn't, they would keep selling them. Margins simply weren't there so they cut it.

Again, I hope I am wrong but I'm trying to see things pragmatically. I'm betting a lot on TSLA's success.

First off, my recollection is that they stopped making the 60 kWh pack not because they were losing money on it, but because too few people were buying it.

Second, how can you say people will have to pay 8,000 (dollars?) for the two Titan GPUs when they have not yet announced prices for anything except the base model car?

Third, I think it likely that Tesla figured that it was less costly to put the hardware in every car than to assemble cars in a wide variety of configurations, and as Ohmman noted above, this will allow them to enable the options for someone who later buys the cars used. They are not forcing you to buy these options. But every company does market research, and they likely know that a lot of buyers will want them.

There's really no way for us to know Tesla's cost to build these cars, so the assertion that they will lose money on the $35,000 trim line is entirely without evidence, and just would not make sense as a business decision. I think it's more likely that they make a moderate profit on the base model, and a much bigger profit on the fully-optioned versions. And since I support what they're doing, it's okay with me that they'll make a lot of money when I buy my Model 3 with all of the autopilot options turned on.

 

[MXWing]

I agree they make more money on options but I don't believe for a second that they'll lose money on base vehicles, that would be a horrible business model and they would get laughed at when the quarterly reports came out showing that.
#1 isn't as bad as you make it sound. Everything I've seen on the internet shows that Tesla pays competitive but not exorbitant salaries. I bet there are many union factories that are paying much higher rates than Tesla.

#2 You'll need to post a link with your evidence that the batteries on the Model 3 will be software limited. The hardware costs for the EAP and self driving is probably under $2K, and whether it is activated or not, Tesla is getting loads of data from it. Also, it's being used for the standard safety features for everyone. So, no it isn't wasted.

#3 repeat of #1 and #2

Did they get rid of the MX60D because of margins or because people weren't buying them? You'll need to provide a link before you start explaining their business decisions.

#1 - I had an AUDI Q5 prior to my MX. That's Audi's flagship SUV. It's being made in Mexico where labor rates are south of $10 an hour. Anything more than $10, it is costing Tesla more than Audi to build cars. Building in the US, its costing in the -multiples- compared to other countries. If the Bolt is made overseas and the Model 3 is made in the US, automatically Tesla is at a costing/profit/revenue disadvantage.

#2 - No one here has published the costs of AP2 hardware (maybe covered in another thread) but I know if its two Titan X GPUS that is over $2000 retail to an end user wanting to put that in a PC. This does not include the 8 cameras, sensors and infrastructure hardware to power it all.

#3 - The MX60D has a 75KW battery installed. My MX60D is 100% identical to any MX75D produced now. The only difference is that the MX60D was $9000 cheaper than the MX75D. The only reason I can see the MX60D being removed is because it cannibalizes sales (it will and did) to the MX75D. If they continued to offer the MX60D, more buyers who wanted a MX could afford to get them. Problem is Tesla couldn't afford to sell them.

First off, my recollection is that they stopped making the 60 kWh pack not because they were losing money on it, but because too few people were buying it.

Second, how can you say people will have to pay 8,000 (dollars?) for the two Titan GPUs when they have not yet announced prices for anything except the base model car?

Third, I think it likely that Tesla figured that it was less costly to put the hardware in every car than to assemble cars in a wide variety of configurations, and as Ohmman noted above, this will allow them to enable the options for someone who later buys the cars used. They are not forcing you to buy these options. But every company does market research, and they likely know that a lot of buyers will want them.

There's really no way for us to know Tesla's cost to build these cars, so the assertion that they will lose money on the $35,000 trim line is entirely without evidence, and just would not make sense as a business decision. I think it's more likely that they make a moderate profit on the base model, and a much bigger profit on the fully-optioned versions. And since I support what they're doing, it's okay with me that they'll make a lot of money when I buy my Model 3 with all of the autopilot options turned on.

Getting rid of the MX60D is completely a margin issue. It's just a software limited MX75D. Tesla could destroy the Bolt right now by cutting the Model S60 base price by $9k and selling it as a S40. But they can't, because they cannot make enough margin by selling 40KW to someone while installing 75KW of battery in a car.

And yes, I agree that no one knows for sure what their profit sheet would look like if someone buys a zero option Model 3. Since I don't know what the sheet looks like, I am formulating opinions based on what they are doing with the build utility. Cutting out 'cheaper builds', cutting build options is all centered around trying to raise margins for each vehicle sold.

 

[dsvick]

#1 - I had an AUDI Q5 prior to my MX. That's Audi's flagship SUV. It's being made in Mexico where labor rates are south of $10 an hour. Anything more than $10, it is costing Tesla more than Audi to build cars. Building in the US, its costing in the -multiples- compared to other countries. If the Bolt is made overseas and the Model 3 is made in the US, automatically Tesla is at a costing/profit/revenue disadvantage.

#2 - No one here has published the costs of AP2 hardware (maybe covered in another thread) but I know if its two Titan X GPUS that is over $2000 retail to an end user wanting to put that in a PC. This does not include the 8 cameras, sensors and infrastructure hardware to power it all.

#3 - The MX60D has a 75KW battery installed. My MX60D is 100% identical to any MX75D produced now. The only difference is that the MX60D was $9000 cheaper than the MX75D. The only reason I can see the MX60D being removed is because it cannibalizes sales (it will and did) to the MX75D. If they continued to offer the MX60D, more buyers who wanted a MX could afford to get them. Problem is Tesla couldn't afford to sell them.

#1 Yes, labor rates are higher for Tesla than for a car made in Mexico or China or just about any other third world country. There is much more that goes into a car than labor and saying that they are going to lose money on them based solely on the labor rate is overly simplistic at best.

#2 As for the cost of the AP2 hardware, you're right no one has published the cost of it but it has been widely speculated that it is probably under $2K total cost. Also, they are not using the Titan GPU, they're using the Drive PX2, and probably only one of them. Lastly, why is the cost of the hardware so important as compared to the costs of everything else that goes into it? You're going to say it's because Tesla is giving it away. But they aren't, I'm sure it is built into the $35K base price. It is being used, in every car, for the standard safety features and, in every car, to send data back to them which makes their software that much more valuable.

#3 Unless Tesla has stated that they got rid of the MX60 because they were losing money on it, it is just as likely that they got rid of it because no one was buying it. For the same reason they get rid of the MS40 - because no one was buying it.

 

[timk225]

I understand that Tesla may want to simplify their build configurations by putting the same hardware and base battery in every car, but some of these things aren't that hard to upgrade. Swapping out a 60 KW battery for a 75 KW, for example. A trip to the local service center, put the car on a lift, unbolt, drop 60 KW battery, roll it aside, replace it with a 75 KW battery, adjust a setting in the vehicle computer, and done.

As for the GPU, whatever it is, have an access panel somewhere, where a service center knows how to go in there, plug in a gpu along with power and data cables, adjust a setting in the computer, and done! The GPU is probably several hundred dollars at the very least, even with a volume discount deal like Tesla will get.

And it is pointless for Tesla to go throwing extra batteries in cars when they already have an extreme demand for as many cells as they can make as it is.

 

[ccutrer]

#1 - I had an AUDI Q5 prior to my MX. That's Audi's flagship SUV. It's being made in Mexico where labor rates are south of $10 an hour. Anything more than $10, it is costing Tesla more than Audi to build cars. Building in the US, its costing in the -multiples- compared to other countries. If the Bolt is made overseas and the Model 3 is made in the US, automatically Tesla is at a costing/profit/revenue disadvantage.

You're assuming it takes the same amount of labor to build each of these cars. Tesla has already stated they're investing heavily in the machine that builds the machine. So if say it takes 100 man hours to build your Audi, but only 10 man hours to build a Model 3 (cause a machine does 90 more man hours worth of work), Tesla could be paying $100/hour, and still be break even with a $10/hour Mexican worker. They wouldn't, obviously, because they have to pay the capital costs of developing the more advanced machine, which is presumably very expensive. But those costs are easy to amortize across 400,000 cars. Really millions over cars, over many years.

Also don't forget how expensive it is to ship a car and its parts across an ocean. Tesla is also working hard to get everything it needs - from start to finish - in a relatively close area to minimize these costs. They're also looking at additional factories in China and Europe so they don't have to ship to these other major markets from California.

Tl;dr: I'm sure base Model 3 margins are relatively thin compared to a loaded model, but there's no way they are negative. And unless you have access to their bill of materials and all other labor costs, you just don't know. And finally, you can't really use other auto makers as comparables, either. Tesla both builds completely different cars mechanically, but they are also far more vertically integrated than any other manufacturer. Including sales, distribution, and service.

 

[MXWing]

#1 Yes, labor rates are higher for Tesla than for a car made in Mexico or China or just about any other third world country. There is much more that goes into a car than labor and saying that they are going to lose money on them based solely on the labor rate is overly simplistic at best.

#2 As for the cost of the AP2 hardware, you're right no one has published the cost of it but it has been widely speculated that it is probably under $2K total cost. Also, they are not using the Titan GPU, they're using the Drive PX2, and probably only one of them. Lastly, why is the cost of the hardware so important as compared to the costs of everything else that goes into it? You're going to say it's because Tesla is giving it away. But they aren't, I'm sure it is built into the $35K base price. It is being used, in every car, for the standard safety features and, in every car, to send data back to them which makes their software that much more valuable.

#3 Unless Tesla has stated that they got rid of the MX60 because they were losing money on it, it is just as likely that they got rid of it because no one was buying it. For the same reason they get rid of the MS40 - because no one was buying it.

#1 - Not just labor but every input and expenses for manufactured goods are cheaper overseas. Many -services- are also cheaper overseas. I know labor is expensive here when someone who can't even melt the cheese on a big mac wants $15/hour.

#2 - I am sure when the Model 3 is out and when someone can dissemble it, we will have an idea on at least raw material costs. They can figure these things out for other consumer goods. Again, hope I'm wrong but if they are losing money on the MX60D I am sure they are losing money on a car with 50% less cost.

#3 - I have personally seen many MX60D's in just a tiny slice of SoCal. If it were back, it would sell. Even if no "wants it" in theory, it still doesn't hurt to offer it. I can elaborate many reasons on why it makes sense to me.

You're assuming it takes the same amount of labor to build each of these cars. Tesla has already stated they're investing heavily in the machine that builds the machine. So if say it takes 100 man hours to build your Audi, but only 10 man hours to build a Model 3 (cause a machine does 90 more man hours worth of work), Tesla could be paying $100/hour, and still be break even with a $10/hour Mexican worker. They wouldn't, obviously, because they have to pay the capital costs of developing the more advanced machine, which is presumably very expensive. But those costs are easy to amortize across 400,000 cars. Really millions over cars, over many years.

Also don't forget how expensive it is to ship a car and its parts across an ocean. Tesla is also working hard to get everything it needs - from start to finish - in a relatively close area to minimize these costs. They're also looking at additional factories in China and Europe so they don't have to ship to these other major markets from California.

Tl;dr: I'm sure base Model 3 margins are relatively thin compared to a loaded model, but there's no way they are negative. And unless you have access to their bill of materials and all other labor costs, you just don't know. And finally, you can't really use other auto makers as comparables, either. Tesla both builds completely different cars mechanically, but they are also far more vertically integrated than any other manufacturer. Including sales, distribution, and service.

GM, Toyota, Honda, Ford all have the capability to build machines that makes machines that make cars. GM sold over 3 million cars in 2015. They chose to make source many vehicle components overseas because it made financial sense to do so.

Ocean freight is the cheapest way to move tonnage across the world. Everything you buy except for an iPhone (those are flown in because the margins are ridiculous) are via container freight.

As I said, I hope I am wrong as I am betting very heavily on TSLA but just my observations does not seem like Model 3s without options will generate a profit.

 

[MP3Mike]

Again, hope I'm wrong but if they are losing money on the MX60D I am sure they are losing money on a car with 50% less cost.

Who said that they lost money on the Model X 60Ds? I think the issue is that the profit was too small, and demand was high enough that they didn't need to sell it anymore. (Remember they are shooting for profit margins of 20-30%, or more, which is way higher than what most other auto manufacturers get.)

 

[ohmman]

my observations does not seem like Model 3s without options will generate a profit.

I think it's likely margins will be thin at best on base models. However, that can be written into marketing expense in the same way Supercharging has been. If they make the base 3 attractive enough to bring in customers, but not attractive enough to keep them from upgrading, it's precisely that. This is a well known and used tactic - it's called a loss leader.

 

[MXWing]

Who said that they lost money on the Model X 60Ds? I think the issue is that the profit was too small, and demand was high enough that they didn't need to sell it anymore. (Remember they are shooting for profit margins of 20-30%, or more, which is way higher than what most other auto manufacturers get.)

Tesla is blowing out its delivery numbers each quarter to where it doesn't need to generate more unit sales. Right. What industry do you work in again?